Recasts, however, continue via JLFs with RBI strengthening the platform
The corporate debt restructuring cell has not received any new case during the six-month period ended September. Lenders, however, have intimated the cell about recasts of two accounts whose package had earlier failed, chairman of the cell Viney Kumar told FE.
“Although no new cases have come, banks want to restructure two accounts in which they believe a second chance is necessary. They are now non-performing assets (NPA) in the respective banks,” Kumar said, adding that the cell is now focussed on reviewing cases that have been recast and where the packages are being implemented.
Kumar explained that joint lenders’ forums (JLFs) have restructured cases during the first and second quarters of the current financial year and the platform is now being strengthened by the Reserve Bank of India (RBI) by forming an empowered group of lenders. Although CDR data is available, the same on JLFs is not in the public domain.
Beginning April, any fresh restructured loan attracts same provisions as non-performing assets (NPAs) at 15%.
Earlier, the RBI had allowed banks to classify such accounts as standard restructured and provide 5%.
Nirmal Gangwal, founder and managing director at Brescon Corporate Advisors, a company that advises clients on turnaround plans, said CDR data does not present a clear picture of stressed corporates as recasts are still continuing through the joint lenders forum (JLF) route. “It’s wrong to say recasts have dried up, as banks are resorting to JLFs to decide on faster recast approvals,” he said.
Since its inception in 2001, the CDR cell has restructured 520 cases worth Rs 3.8 lakh crore out of 647 cases worth Rs 4.5 lakh crore referred to it.
RK Bansal, executive director, IDBI Bank, had said recasts have dried up because banks do not want to risk extra provisions for all stressed companies. “CDR route will be taken henceforth only for companies where the only way of protecting the value of the asset is through a recast,” he had said.
Ambit Capital said in a recent report that it had analysed the financial performance of a sample of 24 companies that have been restructured under CDR over FY12-14 with an outstanding debt of Rs 1 lakh crore as of FY15. It found that restructuring has hardly been of any help since almost all the companies have seen continued stress on their interest coverage ratios and debt-to-equity ratios.
According to RBI data, stressed advances — restructured assets and NPAs— have risen to 11.1% of total advances in March 2015 from 10.7% in September 2014.
The CDR cell works on the principle of approvals by super majority of 75% of creditors (by value), which makes it binding on the remaining 25% to agree to the majority decision and covers only multiple banking accounts and consortium accounts with exposure of R10 crore and above.